New executive pay rules may be less than meets the eye

Citigroup CEO Vikram Pandit has a message for government bureaucrats determined to revamp executive pay on Wall Street.

Bring it on.

"The concept of restructuring the pay on Wall Street is right," he said in a meeting this week with the Chicago Tribune's editorial board.

How about clawing back executive pay when companies blow up? Or compensating long-term performance, as opposed to immediate payoffs for quick profits?

"Those are all good things," he said.

And what about Citigroup commodity-trading ace Andrew Hall, reportedly owed $100 million this year alone? Is that too much for any big bank to pay an employee in one year?

"Yes," Pandit said quietly, perhaps reminiscing about his own mega-paydays of the past. Pandit volunteered at the start of the year to work for $1, until further notice.

In a few weeks, Treasury Department pay czar Ken Feinberg will unveil his first rulings on executive compensation at Citigroup and six other business icons that received federal bailouts. Those are expected to foreshadow coming pay rules from the Federal Reserve for the many banks it regulates.

The very idea of government dictating salary and bonus levels to private companies strikes some as un-American. But for all the hand-wringing about this supposed death blow to capitalism, Feinberg's decisions could turn out to be less than revolutionary.

The seven targeted firms have been talking to Feinberg all summer, plenty of time to reach some fundamental agreements.

"It's been a very consensual process," Feinberg said to a meeting of the Chicago Bar Association by teleconference Wednesday.

Feinberg made it clear he expects criticism. His job is harder, he said, because he's bound by specific do's and don't's in the stimulus law. Those sometimes conflicting edicts make it harder to achieve policy goals, such as linking compensation with long-term results. "It is problematic, but we're doing what we can within those confines," he said.

The law, for instance, imposes greater restrictions on the highest-paid 25 executives than on the next 75, who also come under Feinberg's review. So what happens if No. 26 on the list gets promoted? Potentially, lower pay, Feinberg said.

"That's what we call a conundrum, cubed," he said with a laugh.

The complications could distort Feinberg's decisions, undermining their potential to set a new, best-practices standard for executive pay.

Pandit, for one, doesn't sound too worried.

Given that his company is 34 percent owned by the government, he hardly could be blamed for adopting a "why fight it" mentality. Pandit goes beyond that, however, saying that Citigroup already has revamped its compensation practices and changed in other ways that will make pay restrictions less of an issue.

Proprietary-trading businesses like Hall's Phibro have earned a fortune for big banks in recent years, resulting in huge paydays. But those high-risk, high-reward operations make more sense at a hedge fund or private-equity firm than at the Citigroup of the future, he said.

"They are not bread-and-butter bank businesses," Pandit said. "We are moving away from the whole big emphasis Wall Street has had in the past on proprietary trading. We have changed our business model as a bank, knowing what we're good at. It's that business model that's going to drive compensation."

So if the Phibro-style "goose and golden egg" is dead, what's the "bread and butter" of a global bank these days? Citigroup surely will keep trading stocks and bonds, alongside its customers. Investment banking, underwriting and the usual checking accounts and ATM services no doubt still qualify as its daily bread.

And, of course, Citigroup wouldn't be Citigroup without business loans, credit cards and mortgages. No wonder Pandit's not overly concerned about pay: He has plenty of other worries.